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Adobe Stock Rose in After-Hours Trading despite Cautious Guidance

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Adobe reports its quarterly results

Adobe (ADBE) announced its fiscal 2019 second-quarter earnings results on June 18, 2019, and reported revenue of $2.74 billion, a rise of 25.0% year-over-year. Adobe reported revenue of $2.2 billion in the previous year’s quarter. Its adjusted EPS were $1.83, 10.3% above its EPS of $1.66 in the previous year’s quarter.

Analysts had expected Adobe to post revenue of $2.7 billion and EPS of $1.78 in the second quarter. The company’s earnings beat drove its stock price up 4.6% in after-hours trading on June 18.

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Adobe’s cautious guidance

Adobe expects sales of $2.8 billion and EPS of $1.95 in the third quarter. In comparison, analysts expect the company to see sales of $2.8 billion and EPS of $2.05 in the quarter.

Adobe stock rose in after-hours trading despite its soft guidance. In fact, it’s been on a roll for a few years now. The stock has generated absolute returns of 188.0% in the last three years and 281.0% in the last five years, easily outperforming the broader indexes.

Is Adobe stock overvalued?

Adobe stock is trading at a forward PE multiple of 28.6x. In comparison, its EPS are expected to rise 15.0% in fiscal 2019 and 24.0% in fiscal 2020. Its earnings are also expected to rise at a compound annual growth rate of 22.7% in the next five years.

While Adobe stock might look overvalued, the company continues to grow its revenue at a robust rate. Analysts estimate the company to increase its sales by 23.5% in fiscal 2019 and 17.9% in fiscal 2020. In the event that it manages to improve its operating leverage, it could expand its earnings and drive its stock price higher. Investors are generally willing to pay a premium for high-growth companies.

How do analysts view Adobe?

Of the 31 analysts tracking Adobe, 25 have given it “buy” recommendations, and six have given it “holds.” There are no “sell” recommendations on Adobe. Analysts have an average target price of $296.81 on the stock, indicating a potential upside of just 2.7% from its after-hours closing price of $289.50.

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